Two More New Preferred Issues – Updated

LaSalle Hotel Properties (NYSE:LHO) and Gladstone Commercial Corp (NASDAQ:GOOD), both REITs, have sold new preferred shares.

LaSalle Hotel Properties is an owner of upscale hotel properties that are located primarily on the east and west coasts of the United States. While LHO has operated effectively for the last number of years, we are not enamored with the 6.3% coupon on this issue.  Unfortunately low coupons are the order of the day from any issuer who has even a modest outlook. You may recall that lodging REIT Sunstone Hotel Investors (NYSE:SHO) issued a preferred issue in March at a coupon of 6.95% and 60 days later sold another issue at 6.45% and we consider Sunstone to be the highest quality lodging REIT in existence.  6.3% from LaSalle is simply inadequate for the risk/reward, although we suspect that given the hunger for yield the issue will trade around, or just above, $25/share.

Details of the issue can be found here.

This issue is now trading on the OTC Grey market under the temporary ticker LSAHP.  LHO has 2 other preferred issues outstanding and you can compare the 3 issues on our “swaps” page here.

Gladstone Commercial Corp (NASDAQ:GOOD) has announced a “refinancing” issuance of preferred stock.  Gladstone Commercial has a term preferred issue coming up for redemption on 1/31/2017 and they have decided to move early on the redemption.  The term preferred issue to be redeemed is ticker GOODN which carries a coupon of 7.125%  The coupon on the new issue is 7% and the dividends will be paid monthly.  We note that this new issue is only about $25 million in size which will be inadequate to redeem the term preferred issue in total. This means it is likely that we will see another issue from GOOD in the next 7 months.

Please notice that the new issue is a traditional preferred stock-not a term preferred, which means it is perpetual in duration (no maturity date or mandatory redemption is declared).

Details on this new issue can be found here. UPDATE the new OTC ticker will be GDSTP.

It has been a strange journey for GOOD in getting the new issue done.  Originally they announced a new issue with the intention of redeeming the term preferred as well as the majority of the other 2 preferred issues outstanding which have coupons of 7.75% and 7.50% respectively. Of course the term preferred has a mandatory redemption so it was obvious that this issue would need to be refinanced (even though it has a lower coupon at 7.125% than the other 2 preferreds) and it seemed reasonable to redeem the other 2 issues given their higher coupons, but then GOOD announced that they would only be redeeming a portion of the term preferreds and none of the other issues.  At this point in time we do not know the reason for the change in direction relative to redemptions, although we could speculate, but it is safe to say that there will be another new preferred from the company soon and there will be more redemptions.  Needless to say it would be wise to not be paying more than $25 plus 1 dividend for any of the GOOD preferred issues unless one likes to have capital losses.

While we don’t consider GOOD to be a high quality triple net lease REIT we believe there may be an opportunity to “flip” these shares for a 2% profit once OTC trading starts (the OTC ticker has not yet been announced).